HM revival in land sale jam

Calcutta, May 25: The suspension of work at Hindustan Motors’ Uttarpara plant may have come yesterday, but it was in the making for several years, especially over the last 12 months.

The company management had sold several assets over the last 10 years and also carried out a financial engineering of the balance sheet without any discernible change in HM’s operation and fortune during the period.

Among the attempts made by the car maker included the sale of its components business to Avtec in 2005, followed by hiving off a 314-acre plot in Uttarpara to Shriram Group of Chennai in 2006 for Rs 280 crore.

The latest attempt by the management was to hive off the profitable Chennai car plant to a separate entity but the effort, played out over the last one year, ran into rough weather on the legal front.

Even though HM initiated the demerger of the Chennai plant in January 10, 2013, the company decided to withdraw the move by the end of the year on December 26, 2013.

Sources said the Bengal government and Shriram Group had objected to the demerger. The state said the company owed Rs 194 crore to it on account of the sale of the plot and, hence, the transfer of the plant was not in the interest of the public exchequer.

Shriram Group contended it had paid Rs 280 crore for the plot but was unable to build on it as the government did not give permission. The approval is subject to HM paying the Rs 194-crore due to the state. So far, no money has been paid by the auto maker.

In August 2012, the HM managing director in a tripartite meeting with the chief secretary of Bengal and a representative of Shriram Group had agreed to pay the Bengal government’s dues from the land sale to Shriram. Rest of the money was to be used to revive Uttarpara.

The day (Dec 26, 2013) HM informed the stock exchange about the withdrawal of the demerger, it came up with a proposal to transfer the plant to Hindustan Motor Financial Corporation Ltd (HMFCL), a wholly owned subsidiary of HM.

Such a route does not require court approval and was unlikely to be subjected to dissent, either by the Bengal government or Shriram Group.

Within two days of this decision C. K. Birla, promoter and the chairman of HM, stepped down.

On March 31, 2014, the Chennai plant was handed over to HMFCL and this was followed up by a spate of resignation by MD Uttam Bose, director Kranti Sinha and CFO Yogesh Goenka on May 9, 2014. Within two weeks, the company suspended work at Uttarpara.

It is now unclear how the Bengal government will get its dues from HM, which was allowed to sell 314 acres of the 708-acre plot in 2006 with the aim of reviving the Uttarpara plant.

In response to queries sent by this newspaper, a company spokesperson said the proceeds from the sale of land at Uttarpara along with additional infusion of funds by the promoters and divestment of other businesses were used to reduce HM’s liabilities, especially statutory payments, wages and payments to lenders. The spokesperson said the use of the proceeds from the land sale was submitted to the Bengal government in a detailed manner.

Experts are now questioning how serious the management has been over the years to keep the plant in Bengal, which makes the iconic Ambassador, going.

“To put it in perspective, Hindustan Motors never changed itself with time even as the automobile industry itself saw many changes,” an industry observer with past connection to the company told The Telegraph.

According to him, the Ambassador faced its first “real competition” from Maruti Suzuki in the early 1980s.